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Escrow Arrangements

Types of Software Escrow Arrangements

Single, Multi-Beneficiary, Multi-Vendor Escrow Arrangements

Software escrow agreements are becoming more critical in the complicated and ever-evolving technological landscape of our world. Businesses face risks and hazards associated with commercial software applications, SaaS applications, software source codes, and information technology. These concerns are mitigated by putting software into escrow or an escrow deposit. There are several escrow arrangements to consider, each with a different methodology and function.

What is a Software Escrow Arrangement

software escrow arrangement or escrow Service for software, is just what it sounds like. Object code or executable code is licensed to the end-user in everyday off-the-shelf purchases of software. Sometimes the licensee may have a genuine claim to object code and source code under commercial software licensing agreements. Accessing the source code enables the licensee to understand how the program processes data or performs operations, and it may even allow the licensee to alter the product’s functioning. However, the licensor is typically wary of transferring the source code rights to a third party.

How Does it Work?

A software escrow agreement is used to resolve the “source code dilemma”. The escrow agent acts as the licensor’s deposit material repository for its source code and other proprietary technologies for the benefit of the licensee, who is called the beneficiary. The agent will release the deposit material to the beneficiary if certain pre-defined requirements are satisfied, called release conditions. Without the licensor’s direct transfer of intellectual property rights, the licensee receives the protection it needs.

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National Software Escrow, Inc.

National Software Escrow, Inc.

National Software Escrow, Inc. (NSE) is an independent service provider of software source code protection services for software companies and their end-users. The professionals at NSE have been servicing clients since 1986. With more than 35 years of experience, NSE is your trusted partner for software source code protection.

We have retained the services of one of the country’s leading law firms whose specialists in computer-related contracts understand the technical objectives of these transactions. Rest assured, our Agreements are carefully researched documents designed to protect your rights, interests, and investments.

Types of Software Escrow Arrangements

When it comes to our business, we offer our customers a powerful resource and a recipe for success.

Listed below are the types of escrow arrangements our software escrow agents offer to clients.

Single Beneficiary Escrow Arrangement – Our Single Beneficiary Escrow Agreement is designed for (1) Software Vendor and (1) Licensee whereby, the Licensee is designated as the recipient of the Deposit Materials upon the occurrence of a Release Condition. This type of Agreement is often recognized as a conventional three-party agreement.

Multi-Beneficiary Escrow Arrangement – Our Multi-Beneficiary Escrow Agreement enables a Software Vendor to enroll multiple Licensees to one Master Agreement, in lieu of establishing a Single Beneficiary Agreement for each unique Licensee. It is designed for (1) Software Vendor and multiple Licensees.

Multi-Vendor Escrow Arrangement – Our Multi-Vendor Agreement enables a Licensee to enroll multiple Software Vendors to one Master Agreement, in lieu of establishing a Single Vendor Agreement for each unique Software Vendor. It is designed for (1) Licensee and multiple Software Vendors.

When Do You Need a Software Escrow Company?

Software escrow agreements may be pricey and may not be appropriate for every transaction. This is why it’s critical to base your decision on facts when deciding whether to include software escrow in a contract. While every arrangement is unique, there are a few things to keep in mind when evaluating whether or not a software escrow is necessary in the first place.

You must first consider the risks involved with the licensor or software developers and the actual licensing provided with the software itself.

Licensor Considerations

  • It is evident that the licensor is seeing a deterioration in their business outlook due to financial instability or insolvency.
  • Reduction in the frequency or end of software maintenance and support the licensor is providing.
  • The licensor no longer provides software application updates.
  • Looming possibility of contract violation from the licensor.

Licensing & Software Considerations

  • Is the software critical to the expansion of the licensee’s company?
  • Is the availability of this particular software technology difficult to get via competing vendors?
  • Does the software product have an impact on or impacting stakeholders of the licensee?
  • Is the software being considered for a technology escrow account, required for the licensee’s business continuity planning and operations?
  • Will managing the software in-house create more significant risks than rewards?

Risk Recognized

A software escrow may be a wise decision if, after considering the reasons mentioned, the parties conclude that the advantages of having the escrow materials securely kept with a third-party escrow agent are more significant than the costs.

Recognizing these risks will help you gauge if establishing a software escrow agreement with your software vendor or service provider will protect your organization’s interests.